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March 09, 2006 | Cbonds

Moody's Investors Service has put its A2 local currency rating of the government of Mauritius on review for possible downgrade in light of debt levels that are far larger in relation to the size of the economy than those of the country's peers.

Moody's has also affirmed its negative outlook — assigned in December — on the Baa2 foreign-currency country ceilings and the government's Baa2 foreign-currency issuer rating. The country's local currency guideline remains Aa2.

Aside from the relative size of the government debt, Moody's decision to review the government's local currency rating is focused on subdued economic growth and spending overruns that could result in a larger-than-planned government deficit this year. Together with rising interest rates, a wider budget shortfall would likely lead to an unwelcome pause in the fiscal consolidation process.

The rating agency said it is particularly concerned about weakened medium-term growth prospects and the ability of the economy to recover from the trade shocks caused by last year's expiry of global textile quotas, the pending cut in subsidies of sugar exports to Europe, and high oil prices. Moody's review will examine the extent to which these challenges are being addressed by the authorities and the specific sectors involved, and also whether and how quickly the unfavorable debt dynamics can be reversed.

Moody's said that the external position of the country appears more fragile than in the past because of changes to the global trade regimes, a situation that is reflected in the negative outlook on the foreign currency ratings and deteriorating external liquidity. However, the government's fiscal challenges mainly pose problems in the local debt markets where the vast majority of the government's deficits are financed, putting downward pressure primarily on the local currency rating.

Company: Mauritius

Full company nameThe Republic of Mauritius
Country of riskMauritius


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